Landlord Expenses in Your MTD Quarterly Update: What Counts

What This Post Is About

You are mid-quarter, or you are getting ready to file your quarterly update, and you have a pile of costs sitting in your records. Some are obvious. Some feel like they should count but you are not sure. And some you have been quietly hoping HMRC will not notice.

This post gives you a direct answer for the most common landlord expenses - mortgage interest, repairs, insurance, agent fees, utilities, and council tax - and tells you whether each one reduces your profit figure in an MTD quarterly update. No vague maybes, no disclaimers that avoid the question.

If you want to know what to actually put in your expenses field when you file, this is for you.

Quick Recap: What Your Quarterly Update Actually Reports

Your quarterly update sends two numbers to HMRC for each quarter: your rental income and your allowable expenses. HMRC uses those to calculate a provisional profit figure. It is not a final tax bill - that comes later through your final declaration - but the expenses you include here directly reduce the profit HMRC sees each quarter.

To understand the fields you are filling in, the post Your MTD Quarterly Update Form Explained: Field by Field covers the structure in detail. This post focuses purely on which costs you can put in those fields.

The rule HMRC uses is straightforward: an expense must be wholly and exclusively for the purposes of your property rental business. If it is partly personal, you can only claim the business portion - if you can clearly separate it.

Mortgage Interest: Yes, But Not in the Way You Might Expect

This is the one that catches most landlords out.

You cannot deduct your full mortgage payment as an expense. Your mortgage payment has two parts: the capital repayment (paying back what you borrowed) and the interest. Only the interest element is relevant - and even then, it does not reduce your profit directly as an expense.

Since April 2020, mortgage interest for residential lets is handled through a tax relief called the Finance Cost Restriction. Instead of reducing your rental profit, you get a basic rate tax credit (currently 20%) on the interest you paid. HMRC applies that credit when it calculates your tax for the year.

So you don't enter mortgage interest in your quarterly update expense categories. Instead, you enter it in the separate residential finance costs field of the same update. The 20% credit is applied when your tax is calculated.

If you own a commercial property, the rules differ and full interest deduction may still apply. But for residential buy-to-let, the answer is: not in the quarterly update.

For a full breakdown of how this works, see Landlord Mortgage Interest in MTD: What You Can Claim.

Repairs and Maintenance: Usually Yes

Repairs are one of the most common allowable expenses for landlords and usually straightforward to include.

A repair is something that restores the property to its previous condition. Fixing a broken boiler, replacing a cracked window, repainting after a tenancy, regrouting tiles, replacing a section of guttering - these are repairs. They go in your expenses for the quarter you paid them.

What does not count as a repair is improvement or capital work. If you are adding something new, extending the property, converting a room, or replacing something with a significantly better version than the original, HMRC considers that capital expenditure. Capital works are not allowable expenses in your quarterly update. They may be relevant for Capital Gains Tax purposes when you sell, but not here.

Common grey areas:

• Replacing a kitchen: If you are replacing a worn-out kitchen with a similar standard kitchen, HMRC generally accepts this as a repair. If you are installing a high-spec kitchen in a property that had a basic one, that starts to look like improvement.
• New boiler: Generally accepted as a repair if the old one needed replacing, not if you are adding central heating to a property that had none.
• Replacing single glazing with double glazing: HMRC treats this as a repair, because double glazing is the modern equivalent of the old windows (PIM2030). Upgrading to something significantly better, such as bespoke hardwood frames, could be an improvement.

For a detailed look at where the line sits, see Landlord Repairs vs Capital Works: What MTD Allows.

Insurance: Yes

Buildings insurance, contents insurance for landlord-owned items, and landlord liability insurance all count as allowable expenses. Include the premiums you paid during the quarter.

If you pay annually and the policy covers the full year, you can still include the full payment in the quarter you paid it under the cash basis.

What does not count: life insurance, income protection for yourself, or any insurance that covers you personally rather than the property or its contents.

Letting Agent Fees: Yes

If you use a letting agent to manage the property or find tenants, their fees are allowable expenses. This includes:

• Management fees (usually a percentage of rent)
• Tenant finding fees
• Inventory fees charged by the agent
• Renewal fees

The fee is allowable in the quarter you paid it. If the agent deducts their fee from the rent before passing it to you, you still need to report the full rent received as income and the fee as a separate expense - not just the net amount you received. This is a common mistake that leads to understated income figures.

For more on how income and expenses interact in the quarterly update calculation, see Calculate Your Quarterly Update Numbers: Income to HMRC Line Items.

Utilities: It Depends

Whether utilities count depends entirely on who is contractually responsible for paying them.

• You pay the bills and your tenants reimburse you: Both the utility costs and the reimbursements affect your numbers. The costs are expenses; the reimbursements are income.
• Your tenants pay the bills directly in their own names: These are not your costs and not your expenses. They never go through your accounts.
• You pay utilities for a void period between tenancies: These count as allowable expenses because you are maintaining the property for rental purposes.
• You pay utilities for a property you also use yourself: Only the proportion relating to letting use is allowable. This is tricky to calculate and worth being cautious about.

Council Tax: Rarely

Council tax is almost never an allowable expense for landlords.

In almost all tenancies, the tenant is responsible for paying council tax while they live at the property. If that is the case, it is simply not your cost.

The exception is void periods. If the property is empty between tenancies and you are paying council tax during that time, that is a cost incurred to keep the property available for letting. HMRC accepts this as allowable.

If you include council tax for periods when the property was occupied by a tenant who was responsible for it, you would be claiming an expense you did not actually incur - which is not allowable and could cause problems if HMRC ever reviews your records.

Ground Rent and Service Charges: Yes (With a Note)

If you own a leasehold property - a flat is the most common example - you may pay ground rent and service charges to the freeholder. Both are allowable expenses because they are costs of owning and maintaining the property you let.

Service charges that cover repairs and maintenance to the building or shared areas are straightforwardly allowable. Service charges that cover improvements to the building (a lift replacement, a new roof of a better standard than before) sit in greyer territory, similar to capital works. In practice, most landlords include the full service charge and the distinction is one for your final declaration adjustments or an accountant if things get complicated.

See Service Charges and Ground Rent: What Landlords Can Claim in MTD for more detail.

Professional Fees: Yes, If Directly Related

Accountant fees for preparing your rental accounts or tax return are allowable. Solicitor fees for chasing an unpaid tenant debt through the courts are allowable. Letting agent administration fees are covered above.

What is not allowable:

• Legal costs for buying or selling the property (these are capital costs)
• Legal costs for drawing up your first lease on a property you are letting for the first time (these are considered costs of setting up the letting, not ongoing costs)

If you are unsure whether a professional fee qualifies, ask yourself: is this an ongoing cost of running the rental, or is it a one-off cost connected to acquiring or disposing of an asset? Ongoing costs are usually allowable. One-off capital costs usually are not.

Advertising and Tenant-Finding Costs: Yes

If you advertise the property yourself rather than using an agent - on a portal, in a local publication, or elsewhere - those costs are allowable expenses. Costs of referencing tenants (credit checks, etc.) are also allowable if you pay them directly.

Furniture and Furnishings: It Depends on What You Are Claiming

If you let a furnished property, you cannot simply deduct the cost of buying furniture as an expense in the year you buy it (unless your expenses are being calculated on the cash basis, in which case the rules are slightly different and immediate deduction may be available for some items - this is worth checking with HMRC guidance or a professional).

The more commonly used relief is the Replacement of Domestic Items Relief. This allows you to deduct the cost of replacing a domestic item (a sofa, a bed, white goods) like for like. You cannot claim the original purchase, only replacements.

This relief is claimed at the final declaration stage rather than in your quarterly updates, though you should still keep records of the costs throughout the year.

What to Do If an Expense Is Partly Business, Partly Personal

Some landlords use part of their home for rental admin - a spare room as an office, for instance. Or they use a car to visit properties. Mixed-use expenses can be claimed in proportion to their business use, but you need to be able to justify the split.

For mileage specifically, HMRC's simplified rate for cars is 55p per mile for the first 10,000 miles in a tax year. You record the miles driven for rental purposes (visiting the property, meeting tenants, going to a supplier for repairs) and calculate the allowable amount.

For general mixed-use costs, see Mixed-Use Expenses and MTD: Claiming the Business Percentage.

What Does Not Count - A Quick List

• Mortgage capital repayments
• Capital improvements to the property
• The cost of buying the property
• Council tax during tenancies (where the tenant was responsible)
• Your own living costs
• Fines or penalties (HMRC does not allow these as deductions)
• Costs of properties you are not letting (even if you intend to let them eventually)

Keeping the Evidence as You Go

HMRC can ask you to justify any expense you claim. For each cost you include in your quarterly update, you need to be able to show what it was for, what you paid, and that you actually paid it.

Receipts, invoices, bank statements and agent statements are all useful evidence. You do not send them to HMRC with your quarterly update, but you need to keep them. See What Proof HMRC Needs for MTD Expenses: A DIY Filer's Guide and What Backup Records to Keep for Your MTD Quarterly Update.

Before you file, it is worth running through the pre-filing checklist to make sure everything is in order.

A Note on the Property Allowance

If your total rental income is low (under £1,000 in a tax year), you may qualify for the property allowance, which means you do not need to report any income or expenses at all. Once your income exceeds £1,000, you are better off claiming actual expenses rather than the allowance in most cases.

If you are reading this post, you are almost certainly required to file MTD quarterly updates, which means your gross income is above the relevant threshold. The property allowance is unlikely to be relevant, but it is worth knowing it exists.

Summary

Most of the day-to-day costs of running a rental property - repairs, insurance, agent fees, professional fees, advertising, void period utilities and council tax - are allowable expenses that reduce your profit in your quarterly update. Mortgage interest goes in the separate residential finance costs field of your quarterly update and gets a 20% tax credit, rather than being an expense. Capital works, personal costs, and anything your tenant was liable for are not allowable. When in doubt, ask whether the cost was genuinely for the rental business, whether you actually paid it in this quarter, and whether you have evidence to back it up.